Freakonomics Radio

Why Does Tipping Still Exist?

It’s an acutely haphazard way of paying workers, and yet it keeps expanding. We dig into the data to find out why.

Americans have been tipping, and debating the merits of tipping, for hundreds of years. An 1897 New York Times article described tipping as the “vilest of imported vices.” Today, it’s estimated that Americans spend roughly $40 billion a year on tips. That’s more than the entire health-and-fitness industry is worth; it’s double the annual budget for NASA.

But there are a lot of reasons to dislike the practice. For starters, the norms around it are exceedingly convoluted. Why, for example, do people always tip at upscale restaurants, sometimes at coffee shops, and never at McDonald’s? Why do hotel porters get tipped almost always, but housekeepers almost never?

There’s also the fact that it’s discriminatory. Michael Lynn, a social psychologist at Cornell and a preeminent tipping scholar, has demonstrated that personal characteristics like a server’s race, gender, and appearance factor too much into customers’ tipping decisions. This is a particularly serious problem in the restaurant industry, where waiters and waitresses are often paid less than the minimum wage and make the bulk of their pay in tips.

So why does it persist? There are a number of (weird) reasons, as we found out by digging into the data.

The ride-sharing app Uber was one of the most successful startups in history. The company is also controversial, for a number of reasons. Its founding CEO, Travis Kalanick, was forced to resign after a series of acts unbecoming a CEO. Another Uber controversy: Its drivers, who are independent contractors and not employees, often don’t make much money. And for years, the company didn’t allow drivers to get tips from passengers — at least not through the Uber app.

John List is a professor of economics at the University of Chicago and a former chief economist at Uber (he now fills the same role at Lyft). List is the kind of economist who loves to run huge experiments out in the real world. His past field experiments have explored everything from workplace discrimination to the gender pay gap to tax…